Enough With the Rationalizations; The 2011 Budget Deal is No Prize

I don’t want to keep fighting this, but people really want to believe that Democrats and the President didn’t get played on the 2011 budget deal. They’re clinging to this notion that the cuts are mostly smoke and mirrors and won’t affect anyone personally. Kevin Drum exemplifies this take in at least a slightly more intelligent way:

It’s true that, macroeconomically speaking, this is the wrong time to be cutting spending, but let’s face it: $38 billion in spending just isn’t that big a deal at a macro level. It may have a negative effect, but it’s a pretty small negative effect.

So let’s put the macro-level considerations aside for a moment and just look at the cuts from a pure budgetary perspective. There are a couple of things we can say. First, domestic discretionary spending has gone up about 4-5% a year in real terms over the past decade (and a bit faster than that in the past few years), and it’s difficult even for a hardcore liberal to pretend that this level of growth leaves no room for even modest cuts. Second, given the amount of smoke and mirrors in last week’s budget agreement, the level of actual spending reductions it contains is probably no more than about $20 billion. Maybe not even that much. This is just not Armageddon, and pretending otherwise doesn’t do much except wreck our credibility with the public on fiscal issues.

$38 billion is such a “small negative effect” that it’s 2/3 of the total stimulus spending in the tax cut deal that wasn’t merely an extension of current law. Without speaking to the past decade, discretionary spending has gone up the past few years in relation to a Great Recession, when such spending needed to be increased. With tens of millions still out of work, reducing government spending by even $1 is a foolish enterprise at this juncture. And the recent slashes in GDP forecasts speak to that.

The smoke and mirrors discussion is a lot of smoke and mirrors. While it’s true that a lot of the cuts reflect accounting changes and one-time reductions from increases meant to only last a year, and in general terms the budget could use a spring cleaning every now and again, the truth is that this mainly speaks to the hazards of putting together continuing resolutions year over year, which inevitably lead to these problems. There’s a huge opportunity cost in scoring these as cuts. Money reduced from an already completed Census can be put to use elsewhere; money from unspent transportation earmarks can be excised and shifted into program budgets. This would be a matter of routine in any normal budget year. Turning them into cuts is not “smoke and mirrors”; it’s real-dollar losses that will magnify over time as these numbers become the new baseline.

At a quarter till midnight last Friday, with a deal to avert a government shutdown barely an hour old, Senator Harry Reid phoned a fellow Democratic senator, Ron Wyden, at home and startled him with some bad news. “You lost free-choice vouchers,” Mr. Wyden recalls Mr. Reid telling him.

Even delivered in shorthand, the call’s meaning was clear to Mr. Wyden: a health care plan he had succeeded in getting passed months earlier despite furious lobbying by big business and labor had been pulled out of the blue and killed as part of the broader budget deal struck between the White House and Congress. What was most perplexing was that it had little to do with budgets or government shutdowns.

At least the Obama Administration has the decency to mention “tough choices” they made in the budget. Those who would downplay these choices are simply not being honest. They should also take into account that a budget deal could have been struck with the tax cut deal in December 2010, and all of this could have been avoided with as much as $60 billion back into the budget, and the overall economy.

Drum is correct that the 2011 budget deal is minor from a long-term perspective, especially compared to what’s in store for 2012. But that’s a different argument, and given how 2011 was handled, it doesn’t bode well for the next time. Furthermore, pretending that the deal carries no pain doesn’t do much except wreck our credibility with the public on accurately perceiving reality.

By the way, I don’t believe for a second that Republicans are “scrambling” to round up votes for the bill. They’ll find all the votes they need somehow. I do believe that Rand Paul is kooky enough to force a one-man government shutdown, however. Even if he doesn’t have the votes to sustain a filibuster, all he has to do is deny unanimous consent and force a cloture vote, and he’d ensure at least 30 hours of delay. We’re at Wednesday morning, and the short-term CR passed last week runs out Thursday. Ol’ Rand could get his government shutdown yet.